Insight: Ford 'lifers' get second chance as CEO readies exit

Deepa Seetharaman

9 Min Read

DETROIT (Reuters) - Every Wednesday, Ford Motor Co’s (F.N) top executives gather before sunrise to work through some of the company’s most vexing problems. Notably absent is Chief Executive Alan Mulally.

Ford Motor Co. CEO Alan Mulally attends a gathering with members of the media at the Ford Conference Center in Dearborn, Michigan December 12, 2013. REUTERS/Rebecca Cook

The 2-1/2-hour meetings, which mainly focus on vehicle quality issues, were started by Mark Fields after he was appointed chief operating officer a year ago - a clear sign that a changing of the guard is under way at the No. 2 U.S. automaker.

Mulally, 68, is a top contender to lead Microsoft Corp (MSFT.O), according to sources familiar with the software company. But regardless of whether he gets that job, he is unlikely to stay at Ford through 2014, two people close to the automaker said.

The view from inside Ford, and of people close to the company, is that the management team Mulally groomed is now ready for his exit. Fields, 52, is widely expected to take over as CEO.

“Collectively we have helped change the culture - it’s not just relegated to one particular individual,” Fields told reporters in September. “It’s really about all of us looking to build on the things over the years that have made our culture so strong.”

After more than seven years at Ford’s helm, Mulally is closely identified with the company’s ability to avoid the 2009 federal bailouts needed to save General Motors Co (GM.N) and Chrysler, now controlled by Fiat Spa FIA.MI.

The Kansas native’s “One Ford” strategy connected Ford’s once-disparate business units to achieve economies of scale and boost profit. He also overhauled Ford’s once-toxic culture to create one based on collaboration and disclosure.

Yet the challenges ahead for Ford are still significant, analysts said. The company’s premium brand, Lincoln, is struggling. Quality problems in North America have knocked the Ford brand to near the bottom of reliability surveys from Consumer Reports and J.D. Power & Associates. Ford also is still catching up to rivals in Asia.

The overriding question is how Ford will fare without the architect of its turnaround. A key concern is preventing Ford’s old culture from resurfacing after Mulally is gone.

Ford has repeatedly said Mulally plans to stay as CEO through the end of 2014. This timetable was announced late last year as were several executive changes, including Fields’ promotion to COO and the appointment of Joe Hinrichs to head the Americas.

FORD ‘LIFERS’ POISED TO LEAD

Mulally’s exit would leave Ford mostly in the hands of “lifers” who have spent much of their careers working for the Blue Oval. All but one corporate officer - global marketing chief Jim Farley - were at Ford prior to Mulally.

Most of them rose through the ranks during the 1990s and early 2000s - when the corporate atmosphere had “more intrigue than Czarist Russia,” Ford Chairman Bill Ford, the great-grandson of company founder Henry Ford, once said.

Engineers and designers waited until the last possible moment to reveal problems in hopes of avoiding blame for delays in new car launches. Executives tapped each others’ phones and covertly tried to undermine one another, according to “American Icon,” a 2012 book by Bryce Hoffman about Mulally’s battle to turn around Ford.

In September 2005, then-CEO Bill Ford tapped Fields to staunch mounting losses in North America. Fields devised a restructuring plan dubbed the “Way Forward,” but it did not go far enough.

Ford lost $12.7 billion in 2006, the year Mulally was hired from Boeing Co (BA.N) by Bill Ford, who stepped aside as CEO but retained the title of chairman.

Mulally instituted a Thursday morning meeting to review all aspects of the business, and pressed executives to air problems openly. These business plan reviews, or BPRs, are often cited as the reason for Ford’s cultural transformation.

“We spend a lot of time together,” said Chief Financial Officer Bob Shanks, who has been at Ford for 36 years. “You really can’t hide in your room like I think the old days ... (when) you rarely had to see people other than to go into the arena and joust.”

Under Mulally’s tenure, Ford’s share price has roughly doubled to $16.59 as of Friday’s close. In comparison, the broad Standard & Poor’s 500 Index .SPX rose about 36 percent over that period.

FORGING A BOND IN BAD TIMES

Ford announced last year that the BPRs would now be run by Fields, another sign that he was being tested as Mulally’s heir. Mulally still attends those meetings.

In the past, investors have questioned whether Fields - who joined Ford about 24 years ago after Harvard Business School - can build on Mulally’s successes and sustain his culture changes.

Ford executives point out that it was in the crucible of Fields’ “Way Forward” that the current senior leaders began to develop their rapport. Fields’ attempted cultural overhaul took shape during fast-paced daily meetings at the company’s product development center in Dearborn, Michigan. Executives who worked on the “Way Forward” and a later effort to accelerate that plan describe the room as “a hole.”

Sometimes they discussed new models, sometimes TV’s “American Idol.” The idea to delay the Lincoln Town Car’s demise by shifting production to Canada sprung from these lunches. In the fall of 2006, they briefed each other on the new CEO, Alan Mulally.

“We’d see each other almost every day at lunch time and that was kind of our unstructured (time),” said Hinrichs, who joined Ford 13 years ago. “There was a lot of camaraderie that came from collectively the group working through the Way Forward stuff every day, the Way Forward Acceleration stuff every day and rebuilding the North American business.”

DIRECTORS KEEN TO END LIMBO

A smooth handover from Mulally to Fields would be a milestone for a company that has rarely had a routine CEO transition in its more than 110-year history. Mulally is Ford’s third-longest-serving CEO, after founder Henry Ford and his grandson Henry Ford II.

Last year, Mulally was in talks about a role in the Obama administration, but ultimately committed to two more years as Ford’s CEO.

Speculation that Mulally could become the next CEO of Microsoft has overshadowed other Ford news for months. The limbo at Ford contrasts with GM, which said last week that Mary Barra would succeed Dan Akerson as CEO.

Some Ford directors are now keen for a resolution, especially as the automaker prepares for its biggest new vehicle launch year in history, including an all-new Mustang sports car and a radical overhaul of its most profitable vehicle, the F-150 pickup truck.

“We have skilled leaders at every position, a strong bench of succession plans and I think that’s why you’re seeing Ford continue to deliver profitable growth,” Mulally said in a recent interview. He declined to discuss exit plans.

People close to Ford say younger, newly promoted executives have been making their mark on the company over the last year, tackling top issues such as improving quality.

After his promotion to COO last year, Fields put in place a meeting every Wednesday at 6:30 a.m. Called “special attention reviews,” they are for executives to go over Ford’s more than 60 global vehicle programs and dive deeply into the ones in the most trouble.

Ford has since revamped the way it launches new models, so that engineering, design and purchasing teams work together more closely from the start. Executives say the tenor and results of Fields’ meetings are an example of how Mulally’s culture is baked in to the company.

“It was a way for us to prove to ourselves, more than anything else, that the lessons learned in terms of how we’ve worked together - we can work without Alan being in the room,” said Hau Thai-Tang, recently appointed global purchasing chief, who has been with Ford for 25 years. “It’s ingrained in the Ford culture.”

Additional reporting by Allison Martell in Toronto and Bernie Woodall in Detroit; editing by Tiffany Wu and Matthew Lewis